Bank of America Reports Profit Jump on Higher Interest Rates
The Numbers
Bank of America reported a profit of $7.4 billion last quarter, up nearly 20 percent from the year before.
Revenue grew more than 10 percent, to $25.2 billion in the second quarter.
Bank of America holds nearly $2 trillion in customer deposits, but like most banks, it is seeing declines as customers move their money to accounts with higher returns: The bank’s average deposits in the second quarter dropped around 7 percent from a year earlier.
The bank also continued to make progress on a goal it laid out this year: shrinking its head count through attrition. The bank, which had 288,000 employees in 2010, is down to about 213,000 (excluding summer interns), roughly 4,000 fewer than a quarter ago.
“That sets us up for a good trajectory on expense going forward,” said Alastair Borthwick, the bank’s chief financial officer.
Takeaways
Brian Moynihan, the bank’s chief executive, called the quarter one of the strongest in the bank’s history.
“We continue to see a healthy U.S. economy that is growing at a slower pace, with a resilient job market,” he said. That echoed comments from his counterparts at other big banks, as economists debate the likelihood of a so-called soft landing, in which inflation subsides without large job losses or a significant slowdown in economic growth. Customer spending on credit and debit cards rose 3 percent, to $226 billion, the bank said.
Notably, the lender’s investment-banking business rebounded in the second quarter, after a sharp drop in deal-making had cast a chill over the industry. The investment banking unit’s fees rose 7 percent, to $1.2 billion, and its trading revenue rose 3 percent, to $4.3 billion.
“That’s probably the most important highlight of the quarter, I think, in the global banking business,” Mr. Borthwick said. “We’ve got a little bit of pickup in equity capital markets, and that’s been a welcome sign for us.”
Context
America’s four largest banks — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — have now reported nearly $30 billion in profit for the second quarter, up more than 30 percent from a year earlier. That stands in contrast to their smaller rivals, which have struggled recently. PNC Financial, which released earnings on Tuesday, reported roughly flat profit and sales.
But large penalties for misdeeds remain a routine expense at the biggest banks. Last week, Bank of America was fined $150 million by two federal regulators for charging its customers improper fees and denying them promised sign-up bonuses. The bank reported $276 million in litigation costs last quarter, up from $89 million the previous quarter, “driven by agreements reached on consumer regulatory matters.”
What’s Next
Analysts will be closely watching results on Wednesday from Goldman Sachs, which has struggled to recover from an ill-fated foray into consumer banking. They’ll also scrutinize smaller banks like Western Alliance as those lenders’ leaders try to shake off the effects of the three bank failures this year — First Republic, Signature Bank and Silicon Valley Bank — that threw the regional banking sector into turmoil.
Banks are bracing for a bill related to those failures. Bank of America said its expenses in the second half of this year could include a $1.9 billion accrual if the Federal Deposit Insurance Corporation completes an assessment on banks to cover the costs of protecting failed banks’ uninsured deposits.
Source: The New York Times
